Washington’s Eyes on Venezuela’s Oil

A delegation from the United States traveled to Venezuela for talks. Washington is seeking alternatives to crude oil from Russia — and it’s considering relaxing sanctions against the Venezuelan oil industry.

A delegation from the United States traveled to Venezuela on Saturday and met with representatives of Nicolás Maduro’s government. A number of media outlets reported on the talks, citing people familiar with the exchange. Apparently, efforts by the American government to relax sanctions against Venezuela in order to relieve pressure on oil prices prompted the meeting. At the same time, Russia is estranged from its most important ally in South America.

In 2017, the U.S. under President Donald Trump’s administration began to tighten the sanction screws against Venezuela. In addition to senior government officials, sanctions also affected Venezuelan state-owned enterprises, in particular, the oil company Petróleos de Venezuela S.A. Since then, Venezuelan crude oil has been flowing predominantly to China and Russia. Additionally, Iran supplies Venezuela with light oil in order to thin the heavy Venezuelan crude and make it ready for market. Meanwhile, PDVSA has used Russia and its financial system to process transactions around American sanctions.

540,000 Barrels a Day from Russia

Relaxing sanctions would allow the United States to lead Venezuelan oil exports back to the refineries on the Gulf of Mexico, which are specialized for processing Venezuelan crude oil. According to the American Energy Information Administration, the United States imported almost 8 million barrels of crude oil per day in 2020, of which around 540,000 barrels came from Russia. That is less than the American refineries imported from Venezuela before sanctions took effect. If Washington wants to avoid imports from Russia, experts agree it must consider Venezuela as a substitute.

If the sanctions are lifted, the American company Chevron, which continues to maintain a joint venture with PDVSA, is in a position to generate production of 150,000 barrels a day in a matter of weeks. Various oil service companies that are also still present in Venezuela could reactivate decommissioned sources. Furthermore, around 23 million barrels that are stored in Venezuela would go to market. However, even this couldn’t begin to replace global exports of Russian crude oil. Venezuela’s crude oil industry has wasted away after years of mismanagement. The country with the greatest verified crude oil reserves in the world today doesn’t even produce 800,000 barrels per day. In comparison, Russia produces almost 11 million barrels a day, of which it exports 7 million barrels.

According to Francisco Monaldi, director of the Latin American energy program at the Baker Institute,* Venezuela would not even be able to raise its production to 1 million barrels a day in the short term. Monaldi believes that in order to reach a significant level of production, Venezuela would need five years of investment at $12 billion per year. There is another hurdle as well. Venezuela requires its oil to service the country’s debts to Russia and in particular to China, where it has amassed a mountain of debt of around $60 billion.

Washington Wants To Reopen Channels

Washington seems nonetheless eager to reopen the political and economic channels to Venezuela. As of 2019, Washington no longer has an embassy in Caracas; there has hardly been any discussion between the countries since then. However, before the war in Ukraine, contact had already increased between negotiators from the Biden administration and Caracas. This involved the release of Americans imprisoned in Venezuela including a number of managers from Citgo, the American subsidiary of PDVSA. Washington is also trying to resume discussion between the Venezuelan government and the opposition, discussion that will seek paths to a free and fair presidential election in two years. The war in Ukraine has recently increased demand from both political camps to enhance relations with Venezuela.

However, there is also resistance, especially from Florida, where a now sizable community of exiled Venezuelans continues to demand that the U.S. take a hard line against Maduro. Republican Sen. Marco Rubio has accused the Biden administration of using Russia as an excuse to negotiate a long sought after deal with the Maduro regime. “Rather than produce more American oil, he wants to replace the oil we buy from one murderous dictator with oil from another murderous dictator,” Rubio tweeted.

*Editor’s Note: The Baker Institute for Public Policy is a nonpartisan public policy think tank at Rice University in Houston, Texas.